Microsoft Could Change Smartphones Forever with Skype

MSFT stock is a bargain buy for 2012

When making his call for InvestorPlace.com’s 10 Best Stocks for 2011 a year ago, James Altucher picked “A tiny company called Microsoft (NASDAQ:MSFT).” James goes back to the well again in 2012 with the same call for this year’s feature.

A forward price-to-earnings ratio of less than 8 (less cash), signaling bargain valuation.

A $40 billion stock buyback plan to boost shareholder value.

More than $30 billion in cash in the bank at MSFT, and predictable revenue.

Hopes for the Kinect controller for Xbox catching on, and emerging-market IT sales boosting profits.

Many of those reasons remain. The forward P/E as of this writing is about 8.5. The $40 billion stock buyback plan remains in effect through 2013 — and in mid-2011, an unnamed investment manager urged Microsoft’s board to get even more aggressive with repurchasing shares. Cash and short-term investments total more than $50 billion. And the Kinect indeed was a hit, moving 10 million units in about three months at the beginning of the year.

Microsoft didn’t quite have a breakout year in emerging markets. Lowball pricing and widespread piracy makes that difficult. In the past, MS Office sold for as low as $29 in China because of these pressures. But the potential still is there if MSFT can figure it out.

As for new reasons: James Altucher likes the secret weapon that is Skype.

After Microsoft’s $8.5 billion buyout of the video conferencing and VoIP company, many talked about how it was a defensive move to fend off tech rivals Google (NASDAQ:GOOG) and Facebook — even if MSFT couldn’t use Skype itself. Others thought it would be a play on the enterprise space, integrating video conferencing to MS Office as a way to adapt to the 21st century business environment.

But James says it’s more than that. In his words, “Skype replaces all smart phones within next five years.”

It’s true that voice is increasingly an afterthought to wireless providers like Sprint (NYSE:S), AT&T (NYSE:T) and Verizon (NYSE:VZ). The war for mobile subscribers is won on data plans. And if Skype can use those data plans to dominate the phone segment of the smartphone business … well, that’s quite a game changer.

All the better if Windows can do it on its own Windows Phone platforms and offer a seamless experience that gives Android and Apple (NASDAQ:AAPL) iPhones a run for their money.

The icing on the cake is Microsoft’s move to increase dividend payouts in the last year or so. At the end of 2010, MSFT paid 13 cents per share each quarter — a roughly 2% yield. Now it’s dishing out 20 cents a share for a 3% yield. Not bad.

James Altucher has written for The Wall Street Journal and TheStreet.com, and is founder of the investing website StockPickr. His most recent book “I Was Blind But Now I See” is meant to help regular folks avoid the zombie recruitment machine, expand their personal frontiers, and find the tools to build up the wealth of happiness inside. Read more on Altucher’s personal website or follow him on Twitter at @jaltucher.

This article was written by InvestorPlace staff on behalf of James Altucher.